Thursday, February 28, 2013

Not little 'white'
lies, but bloody great big black ones. The sort of lies told by politicians and
their bankster friends. The sort of huge lies that hurt and damage you and me,
and keep this country in thrall to the rich and powerful interests in the City
of London. The vested interests that don't give a damn about this country,
about its ability to employ its people or encourage its small business enterprise
model to flourish and thrive. The powerful interests that took this country to
the brink of financial disaster in a welter of uncontrolled speculation on
ill-understood derivative and securitised contracts, who manipulated the LIBOR
market and turned it into a thieves kitchen, who are now doing the same thing
with the Gas price-setting market, who laundered drug money for the Mexican
Cartels, and who routinely flouted the international sanctions intended to deal
with terrorists and rogue states.

These are the power
groups who when they got caught, called on their friends in Government to rally
round, to defuse the ticking scandals, lean on the regulators and prosecutors,
issue downright lies as press releases, and generally try and make the problem
go away, for fear that the criminal banks might take their crimes elsewhere, to
another jurisdiction who was less fussy about their dishonesty, so that they
can continue to reap the rewards for their wrong-doing, the kind of rewards
that would make an ordinary man or woman gasp in disbelief.

There are two
particular stories in the financial press today which deserve a second look.
They both deal with big bankster lies.

The first story
deals with the decision of EU chiefs, who have agreed a package of financial
laws that includes capping bankers' bonuses at a maximum of one year's basic
salary. The bonuses will only be allowed to reach twice the annual fixed salary
if a majority of a bank's shareholders agrees.

Yes, you read it
right, bankers' bonuses will be capped at one year's salary unless the
shareholders agree and then they can be doubled.

I know we are talking
about the people in the investment banking divisions of the banks, I doubt if
the average counter clerk gets this kind of bonus, but hey, I'm sorry, but can someone enlighten
me as to how this bunch of clowns who will already be earning somewhere in the
region of £300,000-£400,000 a year as basic salaries, gets to deserve this kind
of bonus in this present age? What do they have to do to secure that kind of
money, apart from deliver even bigger sums to the bank itself, and where the
hell is that money coming from anyway?

Well, we know where
a lot is coming from. Mexico might be on hold for HSBC right now, but sure as
hell there are other drug producing entities out there. The Pakistanis didn't
appear to have slackened off from exporting vast sums of dirty money from the
Afghan drug trade through British banks
based in Dubai, when I last looked!

Russian oligarchs
don't appear to have fallen out of love with moving their dubious money through
London, while the foreign tax evasion business is still thriving. Banks are routinely
ignoring their legal responsibilities under the money laundering regulations to
fully identify their customers and especially the Politically Exposed Persons
(PEPs) (not my allegation, the FSA has said so), that they are required to pay
special attention to, and the money keeps rolling in.

So, please, someone,
anyone, tell me what it is these people do that is so valuable to the UK that
they deserve to double their annual pay, every year, as a basic minimum?

Someone on Radio 5
Live has just said that they bring in £50 billion a year into the British
economy. Well, that sum may hit these shores electronically, as part of a
relocation process, but I seriously doubt if all of it stays here, in fact I
suspect that a huge amount of it moves on fairly quickly to some other safer,
palm-fringed location, having been discreetly disguised behind a British
facade.

The same Radio
commentator has said that these people bring in a lot of revenue for the UK,
but as we all know that the vast majority of UK banks spend fortunes relocating
their profits elsewhere, I seem to remember that all the British banks assessed
together only contribute about 7% of the UK GDP, so I am not sure whether that
is an influential argument to justify giving them these bonuses.

Currently there is
no legal pay limit on top bankers and traders, who can earn performance bonuses
many times their basic salaries. In fact, the bonus cap outlined is just a part of a sweeping financial reform
package introducing higher capital requirements for banks, the so-called Basel
III rules. Othmar Karas, the European Parliament's chief negotiator, said:
"For the first time in the history of EU financial market regulation, we
will cap bankers' bonuses.

"The essence is
that from 2014, European banks will have to set aside more money to be more
stable and concentrate on their core business, namely financing the real
economy, that of small and medium-sized enterprises and jobs."

So, the underlying
function of this programme is really to ensure that Banks put a lot more money
onto their balance sheets, to enable them to be more stable and resistant to
financial seismic shocks, which proved to be so dangerous a few years ago.

The impact is
intended to drive the banks into a situation where they must begin to focus on
their traditional role as providers of capital to fund business and drive
growth, instead of merely being casinos, speculating on derivatives and
cleaning up drug money for dodgy Mexican banditos!

So, what is wrong
with any of that, isn't that what every politician is calling for, isn't that
what industry wants and needs, isn't that a desirable outcome, someone, please
tell me what is so wrong with that ambition?

Well, of course, the
EU is content to consider a 100% bonus package in the future, because they know
perfectly well that no bank can make the kind of money that drives such a bonus
by operating as a decent, wholesome, lawful bank, making transparent business loans
to entrepreneurial customers. They have to continue to operate as 'fiducaires'
to crooks and foreign dictators in order that get that kind of cash flow, and
the banks, and the City and the Politicians know it, and that's why I say they
are telling big lies.

Hear what dubious words
our Prime Minister utters!

“...We in the UK
have major international banks based in the UK that have branches and
activities all over the world...We need to make sure that regulation put in
place in Brussels is flexible enough to allow those banks to continue competing
and succeeding while being located in the UK...”

The UK has been
battling to stop the Basel III accord on capital requirements, fearing the
impact on the City of London as the EU's leading financial capital. The
announcement represents a major blow for the UK Government, which has argued
against a cap on bonuses over fears that bankers could leave the capital as a
result.

This is such an old
and hoary chestnut I am amazed Cameron still keeps trotting it out, but it gets
another outing every time something like this happens! It's as if he can't
think of any other reason, just like the other hackneyed excuses he rolls out.
He has warned that '...European Union regulations could harm the City’s
competitiveness...' after Brussels voted to cap bankers’ bonuses...'

This is what I mean
when I talk about big lies. David Cameron is playing to the Eurosceptic wing of his party. This isn't about economics
or banking, this is just grubby politics. How on earth can European regulation possibly
damage our competitiveness, surely it can only improve it? To be competitive
means that you compete for business on equal terms with all other banks
throughout Europe.

The uncomfortable reality
is that the City doesn't give a flying fuck about fairness or competitiveness,
it wants a monopoly, and it wants to maintain its hegemony over other European
banks. It wants to keep the drug money and the foreign criminals' proceeds for itself!

Cameron has to come
out with this crap because he has that other comic chancer and self-populist,
Boris Johnson snapping at his heels like a demented poodle. He is also a
delusionist when it comes to the competition argument. He states;

"This is
possibly the most deluded measure to come from Europe since Diocletian tried to
fix the price of groceries across the Roman Empire," he said. (I Imagine
that In Brixton, they speak of little else!) "Brussels cannot control the
global market for banking talent. Brussels cannot set pay for bankers around
the world....The most this measure can hope to achieve is a boost for Zurich
and Singapore and New York at the expense of a struggling EU..."

Speaking in Latvia
today the Prime Minister said he would look “very carefully” at the EU’s
decision.

Is this the same
David Cameron who only a year ago In a wide-ranging speech in London on the
economy, said he wanted to discourage irresponsible bank bonuses and encourage
firms to show "social responsibility" and said that the chancellor
was considering new tax rules to prevent abuse.

He used that speech
to discuss his vision for a transformed capitalism, based on two principles "The
first is a vision of social responsibility, which recognises that people are
not just atomised individuals, and that companies have obligations too.

"And the second
is a genuinely popular capitalism, which allows everyone to share in the
success of the market."

The government is
consulting on new rules which would require the UK's 15 largest banks to reveal
remuneration for their eight highest-paid non-board executives - board
executives' pay is already published. Mr Cameron said hard work and success
should be rewarded - and entrepreneurs who got rich should be celebrated. But
he said the City bonus culture had "got out of control" in recent
years.

This was the same
speech in which the Prime Minister said he wanted "no rewards for
failure".

Today, after hearing
of the RBS decision to pay bonuses amounting to £607 million, the Government
called this a responsible demonstration of laudable restraint! Well, if this
year's figures are a success, then I am a chocolate frog! These are the
so-called 'successes' that RBS staff got rewarded for.

An announcement that
it made a loss of £5.16billion last year. In fact RBS has made a loss for five
consecutive years, ever since it was largely taken into public ownership in
2008 during the global economic crisis.

The large hit RBS
took over the past year was attributed to unusual costs such as the additional
£450million it was forced to pay out to customers who were defrauded by payment
protection insurance, bringing its total compensation bill to £2.2billion.

In addition, the
bank has been fined £381million for its role in the Libor rate-fixing scandal, it
must set aside £700million over fraudulent interest rate swaps, and it lost
£1.3billion in restructuring costs.

RBS also had to take
a £4.6billion accounting cost based on a revaluation of its own debt.
Nevertheless, the announcement that RBS would nonetheless reward staff with
'bloated bonuses' worth millions was described as 'astounding', with the bank
accused of 'turning a blind eye' to wrongdoing over scandals such as
rate-fixing and the fraudulent selling of insurance.

Chairman Sir Philip
Hampton tried to put a brave face on it all. He admitted that the bank could
not guarantee that the taxpayer would ever see a return on its investment. 'We
will do our best to see if the taxpayers' money can be returned, but the bank
was in a terrible mess, if you go back four or five years, it needed
substantial re-capitalisation,'

He confessed the
decision to pay massive bonuses rather than returning taxpayers' cash was
'toxic for everybody', but insisted it was necessary to avoid haemorrhaging
skilled staff.

Here we go again,
the dodgy old 'skilled staff' argument. If bankers are so skilled, how did they
manage to drop us in the financial doo-doo in the first place. Even Lord Lawson
on the Banking Commission has publicly stated that there is nothing very
special about bankers, and that they are ten a penny!

In an interview on
BBC Radio 4's Today programme, Mr Hester refused to put a date on when the bank
could be returned to private ownership, but predicted, 'RBS will be ready to be
privatised within the next couple of years.'

He then proceeded to
perpetuate another great big mis-statement about the banking sector. He
attributed the company's losses to the legacy of mismanagement he inherited,
saying: 'The clean-up of RBS is entering its last phases, and I'm hopeful that
as we enter the last phases of 2013 and into 2014 the company will look more
like a normal company. '2013 will be another tricky year for us and for the UK
economy, but every year that passes we are chopping away at the bad inheritance
we had.'

Well, excuse me, but
isn't that rather the point. Hester knew exactly what he was getting into when
he joined the bank, and anyone working for him must know the deal. When you
inherit someone else's Augean stable, you have to shovel a lot of shit, in
order to clean it up. That's the moral burden of responsibility he took on,
whether he like it or not, when he adopted somebody else's screw-ups.

This is your big
dilemma, Mr Hester. You can't turn round and claim you would have been making a
profit if it wasn't for all the fines you have had to pay for all the crimes
your predecessors and no-doubt some of your staff committed, some of whom may
still be employed by you. If and when you get it right, then no doubt the
glittering prizes and the bonuses will be awarded to you, but if you knowingly
take on a problem situation in full possession of all the facts, then it seems
ridiculous to be paying you bonuses when you are still making losses. You are
in a secure job, and being paid a great deal of money anyway, and the same goes
for your staff. In this era of deep recession, what more do you want?

Well, it seems
Hester does want more!

Commenting on the
EU's bonus restrictions, Mr Hester confirmed in an interview with BBC Radio
Scotland that he would be taking his bonus of shares worth £780,000 next month,
saying: '...Other people decided to award it to me - as you know it's the only
bonus in four years I have taken...'

He doesn't get it,
but he is not alone, none of them do! The bankers think that by continuing to
threaten Government that they will move elsewhere, that this will permit them
to maintain the comfortable sinecure they have so long been used to enjoying.
Let us not forget, as taxpayers we own a significant chunk of RBS and we have a
big investment in other banks as well.

Like I said, we must
be completely barking mad if we agree to their getting one penny bonus more,
before they have returned all our invested money with interest!.

Wednesday, February 27, 2013

"...Some banks appeared unwilling to turn
away, or exit, very profitable business relationships when there appeared to be
an unacceptable risk of handling the proceeds of crime. Around a third of banks,
including the private banking arms of some major banking groups, appeared
willing to accept very high levels of money-laundering risk if the immediate
reputational and regulatory risk was acceptable..."

This is the opening paragraph of the FSA's report
of June 2011, entitled "...Banks’
management of high money-laundering risk situations..."

It helps to explain most succinctly why banks
are refusing to disclose suspicious activities. They are not making disclosures
to law enforcement because they are making huge sums of money from the practice
of money laundering, no matter how high the risk to the individual bank may be.

What this tells us immediately is that banks
and those who manage them, and this decision has to be taken at a very senior
level indeed within the organisation,
have made a conscious choice to wilfully ignore a very important piece
of legislation which is deemed vital to help law enforcement fight the
activities of major criminals, drug traffickers, fraudsters and terrorists. I
challenge them to say it isn't so, because I know it is.

This is a very simple issue. The law is there
to require banks and financial institutions to disclose their suspicions of
criminal wrongdoing if and when they
notice financial activities which are clearly out of the normal or usual range
of their clients activities, being carried on, and for which there is no reasonable
explanation.

It is
not an onerous duty, and merely requires the completion of a form spelling out
certain information about the client and the activity which is then passed on to
the relevant law enforcement agency. Such information is vital to an
intelligence-led police agency, seeking to do its best to combat organised
crime and terrorism, and it is mandated in law. It is a legal duty, for which
criminal sanctions can apply for a wilful failure to meet the relatively simple
requirements enacted in law.

We are all familiar with the myriad of cases of
single women who have been imprisoned for claiming welfare benefit, but failing
to inform the relevant authorities of the existence of a man who may stay with
them on occasions in their home. These women lose everything, including their
liberty, merely for giving in to the desire for some ordinary human contact and
love, and our society punishes and marginalises them in the cruellest ways
imaginable. They go to prison and their children go into care, and every time
this piece of social calumny occurs, the Judge trots out the usual routine
message that he is passing a custodial sentence to send a message that benefit
fraud will be taken seriously.

I am unaware of many financial practitioners
who may have received a prison sentence for failing to disclose relevant
information of suspicions of criminal activity which may have come to their
attention, and herein lies one of the major failings of the law, because it
discriminates against the weak and the powerless and it favours the rich and
powerful.

When it comes to money laundering and
compliance with a simple piece of regulation, it is an issue which is
completely ignored by the FSA, the regulatory agency with the responsibility to
ensure that financial institutions are complying with this law. The FSA have
taken their collective eye off an important element which is vital for ensuring
that the money laundering regime in the UK is enforced strictly and fairly, as
a result of which, the banks completely ignore the demands of the law.

You might be forgiven for thinking that it is
not the FSA's responsibility to regulate bank's compliance with the Money Laundering
Regulations, but it is written into the Financial Services and Markets Act
2000.

Section 6 of the Act is clear. It states that
one of the FSA's responsibilities is;

The reduction of financial crime.

(1)The reduction of financial crime objective
is: reducing the extent to which it is possible for a business carried on—

(a)by a regulated person, or

(b)in contravention of the general prohibition,

to be used for a purpose connected
with financial crime.

(2)In considering that objective the Authority
must, in particular, have regard to the desirability of—

(a)regulated persons being aware of the risk of
their businesses being used in connection with the commission of financial
crime;

(b)regulated persons taking appropriate
measures (in relation to their administration and employment practices, the
conduct of transactions by them and otherwise) to prevent financial crime,
facilitate its detection and monitor its incidence;

I have highlighted the relevant elements that
apply to money laundering, and I have included the element at sub-para 4 which
includes offences committed outwith the United Kingdom. Regular readers of this
blog will remember how a senior City Grandee tried to claim that it was not the
FSA's duty to regulate an HSBC bank in Mexico. This sub-section shows how wrong
he was!

I will demonstrate later how the FSA are still
trying to squirm out of their responsibilities for this requirement!

The requirements to disclose suspicious
disclosures, later suspicious activities, were first enunciated in 1994. The
banks all complained loudly and long about this requirement, because, as they
tried to argue, it ran directly counter to their traditional privilege of
keeping their clients affairs confidential. The British Home Affairs Committee
which looked into the proposed changes in the law needed to implement the soon
to be enacted European Money Laundering Directive, realised that something had
to be done to make it easier for banks to make disclosures of their suspicions
of criminal transactions, but without rendering themselves to be sued for
breach of confidentiality.

Remember, at this time the only offence which
was being considered to be covered by the money laundering law, was the proceeds
of drug trafficking, which was becoming a significant issue in UK law
enforcement.

The duty to disclose suspicions to law
enforcement was enacted as a defence for bankers against any subsequent
allegation that they had been knowingly engaged in the laundering of the
criminal proceeds of such a drug offence. So where a banker made a disclosure
of his suspicions to the relevant police agency, he could not subsequently be
prosecuted for any money laundering offence related to those proceeds, because
he had alerted the authorities to their potential existence.

The banks were hoist on a petard of their own
construction.

They had previously declined to pass police
information without the need for a cumbersome legal procedure to obtain an
obscure Court Order, all the while maintaining their absolute willingness to
cooperate with police enquiries, save only for the prohibiting effect of the
confidentiality clause in their contract with their client.

In one stroke of the pen, the banks were
relieved of that burden and the obstacle of client confidentiality was removed,
in cases where the bank was making a bona-fide disclosure of their suspicions of
criminal money in the client's account.

Perhaps unsurprisingly, very few disclosures
arrived at the relevant police agency, indeed it quickly became obvious that
the banks were very reluctant to make any disclosures at all. Whether this was
born out of a sense of willing disbelief that their clients might be up to no
good, or because, as I have always suspected, the banks never had any intention
of talking to police in the first place, and resisted becoming suspicious, is
merely a matter for conjecture. We do know that within a relatively short time,
Parliament had to enact an amendment which made it mandatory for employees in the
banking community to pass suspicions of criminal conduct to police, where the
knowledge or suspicion came to them during their ordinary duties in the bank.

Nevertheless, the disclosure requirement still
operated as a defence to any subsequent criminal charge, so the point is that
any banker who does not make the relevant disclosure, can if an offence is
subsequently brought against the client of the bank, be prosecuted for willing involvement in the
unlawful activity.

The
point is you would think that any banker, coming face to face with such an
eventuality, would want to make a disclosure to the police, in order to benefit
from the defence provision, but for some reason, we know that banks are still
very resistant to making any kind of realistic disclosures to the Police, and
we need to understand why that is.

We only have the banks' actions and conduct to
measure this particular failing, it's not as if they make a virtue out of
telling us their reasons for flouting the law.

We can rely to some extent on their own words,
as where I was invited to address the Group Heads of AML in a number of major
banks in London, and they made their feelings about the AML regime perfectly clearly,
they think it is a waste of time, effort and money!

They will all say, if asked, that their
institutions spend a great deal of time, effort and money complying with the
AML requirements, but in reality, their efforts are little more than window
dressing, and they do not go near the implementation of the core requirements
of the legislation.
As the Group Head of one of the most egregious banks in
London for money laundering said to me at the dinner, '...It's a total waste of
time and money and I am not going to bother worrying about passing detailed
transaction disclosures to the police....'

This man also gave me the answer to the second
part of the riddle, because when I asked him if he was not worried about being
dealt with for failing to do the job properly, his answer was that '...no-one
gets dealt with for this issue, so he wasn't going to worry about it...'

I think that is where we have it in a nutshell.

The banks don't want to pass information about
clients' affairs to the police, because they are making a great deal of dirty money out of
the practice, but they believe that if the word gets round
their client base that they are too compliant with the law on passing
incriminating information to the police, then they will lose client share, and
thus, client money.

The FSA don't regulate the financial sector's compliance
with the AML Regulations or the substantive law sufficiently, to make their
presence a real threat which has to be acknowledged, and as a result, the banks
rest content that they don't have to do too much to comply.

So, they don't bother to train their staff in
compliance skills, they don't train them how to properly analyse computer-generated
alerts, they don't teach them how to maintain an effective client surveillance
database which might be capable of recalling previously unusual episodes, they
simply do the least possible to get a tick in the box from a complacent regulator,
and they carry on as if nothing was happening.

The end result is a situation where a great
deal of shareholders' money gets spent in creating the impression of compliance with the
AML laws and regulations, but where, in reality, it is business as usual when
the dirty money comes rolling in.

How else can you explain what happened at HSBC,
when the 'Laundering Bank', (for that is how we must now christen it), went
ahead and created a deliberate money laundering structure in Mexico, and used
it for facilitating the movement of Mexican drug money belonging to the drug
cartels?

This wasn't an accident, you don't let things
like this occur without anyone noticing. It was deliberate and it was a
business case decision, and they got away with it, because no-one in HSBC was
sentenced to any term of imprisonment.

And why did they not get prosecuted here in the UK? Because the FSA has now made a conscious decision that they are
not going to do anything about money laundering cases.

Earlier I set out the terms of Section 6 of the
Financial Services and Markets Act which empowers the FSA to act in money laundering
cases. Following the LIBOR scandals, the House of Commons Treasury Select
Committee has criticised the FSA for their failings in dealing with relevant
elements of regulatory responsibility.
The FSA has sought to rebut those criticisms, and what follows is taken from
their report. The Select Committee's feelings are reported in the bold type.

"...The FSA has an obligation
under section 2(1)(b) of FSMA to discharge its functions in the way in which it
considers most appropriate for the purpose of meeting its regulatory
objectives. Under section 2(2)(d) the reduction of financial crime is one of
these objectives. Financial crime is defined in section 6(3) as including not
only misconduct in relation to a financial market but also any criminal offence
of fraud or dishonesty. The FSA took a narrow view of its power to initiate
criminal proceedings for fraudulent conduct in this case. (Paragraph 202)..."

The FSA's response (in italics) states:

38. The FSA has extensive
powers to investigate specified offences, both regulatory and criminal (as set
out in FSMA). These powers of investigation do not, however, extend to other
offences not specified in FSMA such as theft, fraud and false accounting. The
police and the SFO do have powers to investigate these offences so we cannot
use our powers specifically to obtain material relevant to these offences.

This is not strictly accurate, indeed it is not
true, the FSA have perfectly ordinary common law powers, the same as possessed
by the Police and that feature has been made perfectly clear to the FSA by the
Courts, and I don't know why they keep on trying to assert the contrary. On
29th July 2010 the Supreme Court confirmed FSA’s power to prosecute money
laundering offences.

The Court of Appeal decision in R v
Rollins, concerned a prosecution by the FSA for insider dealing and money
laundering. In that case, the Court of Appeal confirmed the FSA’s power
to prosecute offences beyond those expressly set out in the Financial Services
& Markets Act 2000 ( “FSMA”), including money-laundering offences under the
Proceeds of Crime Act 2002 (“POCA”). That decision was subsequently
appealed and on 28 July 2010, the Supreme Court unanimously dismissed the
appeal.

The Supreme Court observed the FSA’s objects include carrying out any functions
conferred on it by statute. FSMA sets out the FSA's functions and
objectives, which includes acting in a way that it considers most appropriate
to meet its regulatory objectives, including the reduction of financial
crime. In this regard, it has powers of prosecution.

The Court noted that as one of the FSA’s functions was to reduce financial
crime, “Parliament would not have intended to deprive the FSA of the power to
prosecute for offences of financial crime (of which sections 327 and 328 of
POCA are examples)”. If the FSA was limited to prosecuting solely the
offences listed in section 402, this would be an “inefficient and
unsatisfactory way of prosecuting crime”; there was no need to infer that
Parliament intended to limit the FSA’s power in this way.

The FSA continued;

39. We may of course
discover evidence of these more general offences whilst conducting
investigations under the powers set out in FSMA. For example, we may discover
evidence of fraud whilst investigating whether a regulatory breach hasoccurred, or a market abuse offence has been committed. In
these circumstances, there is a well established procedure for discussions to
take place between the FSA and the SFO or other prosecutors about how to deal
with that evidence. This is in accordance with the Prosecutors' Convention, to which
both the FSA and the SFO are signatories. Such discussions might lead to the
SFO opening its own investigation.

Well, yes indeed, they might do. But they might
just as easily not take place. Pigs might fly, turkeys might vote for
Christmas, but unless the FSA are going to be more willing to share their
evidence with other agencies, it is unlikely that many prosecutions will flow.
What happens if the specific case does not fit in with the SFO's terms of
operation, as where the sums involved are under £2 million?

Let us just say that the FSA do not think they
take a narrow view of their powers. Others might disagree with them!

The bottom line here however, is that the FSA
clearly want as little to do as possible with the AML requirements, so as far
as prosecuting financial institutions for breaches of the Money Laundering
Regulations are concerned, we must all get used to the idea that such an event
will be a triumph of hope over experience.

All the time the banks know they will not be
called to account for failing to deal with the money laundering regulations
properly, they will continue to permit vast amounts of criminal money to enter their
books by money laundering for drug traffickers, tax
evaders, thieves, fraudsters and terrorists. It's not rocket science, it's just
the way it is!

Sunday, February 24, 2013

I don't think there is
much dispute that the financial crisis and the recession which has followed
which has done so much to destroy the living standards and the future hopes of
so many millions of working people in this country, was caused by the criminal
antics of the investment bankers, who allowed their greed and their avarice to
overcome any sense of prudence and sound banking judgement, they might once have
possessed.

This period of scandalous
mis-management, downright criminality, bankers' hubris, and coupled with gross
regulatory incompetence has effectively brought this country to its knees, and
now, thanks to another period of arrogant political misjudgement, it now looks
as if we are going to experience an even greater period of financial
upheaval. As our Triple A rating starts
to take lumps from the global financial markets, as the pound devalues possibly
to parity with the Euro, inflation rises, and wages get squeezed even tighter, porky
millionaire's son, Georgie Osborne flip-flops around like a beached bloater, desperately
trying to persuade us that his policies are working, opening and shutting his
mouth, but with nothing of value coming out.

It is obvious to anyone
with a modicum of common sense or knowledge of social history that what Osborne
and Cameron are really doing is using this financial crisis to wield the weapon
of imposed austerity, as a deliberate attack on the Welfare State. They are
seeking to finish what Thatcher failed to achieve, which is the wholesale
removal of the welfare dependency culture. In so doing they are in grave danger
of throwing out the baby with the bathwater, because they are ignoring the real
cause of potential future social upheaval!

Amid all this financial turmoil,
which is by now completely out of the hands of any of the politicians of any persuasion to do
anything sensible about it, a new report 'Bankers and Their Bonuses' is
published by the London School of Economics, a study which reveals the growing
gap between the fat cats who sparked the financial crisis and the workers who
are now having to pay for their mistakes.

The report states among
other unpalatable facts that:

Bankers' pay has rocketed
14% during the recession compared to 3.7% for the rest of us. This fact alone
should be enough to set alarm bells ringing in Number Ten Downing St, and if I
were David Cameron, I would be setting up an emergency meeting with the
Commissioner for the Metropolitan Police and seeking assurances that the Met
Police were fully equipped and ready for serious public order manifestations
come the Summer.

London’s top 1,400 bankers
take home an average £2million a year including £568,000 “basic” pay. This an
obscene statistic and we are entitled to ask what this bunch of useless parasites
do for the benefit of society which justifies their receiving this largesse.

Overall, City financiers
received 14.2% more in salary and cash bonuses in 2011 than they did in 2008.

An astonishing £1 in every
£7 earned in Britain now goes to the top 1% of earners, but In 1979, before
Margaret Thatcher took charge, the figure was £1 in £20.

Inequality caused by
soaring financial sector pay shows no sign of slowing. The report notes that “...The sector which in some sense caused the
whole crisis is the sector which seems immune to almost any employment effect...Traders
earning millions are in some sense not replaceable so they have remarkable
bargaining power...” This may well be true from a raw economic analysis, but
these traders generate nothing of any discernible social value.

But despite widespread
public outrage at the bankers' bloated pay, Barclays’ ex-boss Bob Diamond
getting a salary of £1.35million in 2011 – 20% more than his predecessor, David Cameron is bitterly opposed to any
measure which would restrict their ability to continue picking up this money.
This because he is hostage to the threats made by the banks that they will
relocate their operations if they are baulked in their practices. Instead of
calling their bluff and saying, "...Fine, we'll miss you...", he
capitulates in the face of this crass bullying.

At the same time as caving
in to his bloated friends in the City, partly because he doesn't want to put at
risk the contributions they make to the Tory party, David Cameron is, perhaps
not surprisingly also against raising the minimum wage for ordinary Unionised
workers, despite huge backing in the country for such a policy, partly because
they don't make any contributions to his party's coffers! Consider the
following.

While City bankers' pay
increased by 14.2%, average workers outside the City got 3.7% over the same
period – equivalent to a 6% FALL after inflation, because prices went up a
whopping 9.6% between 2008 and 2011. Unison, Unite and the GMB estimate that the cumulative effect of
the local government pay freeze, now in its third year, coupled with high
inflation has resulted in a 13% decrease in pay since 2009.

As I truthfully cannot see
the need for bankers in these numbers, nor do I genuinely understand quite what
they contribute to the common weal, because the vast number of them are nothing
more than gamblers, playing with other people's money, or money launderers
offering a safe haven to drug cartels, (HSBC), third world dictators or foreign
tax evaders (Barclays), market manipulators (RBS) and terrorist sanctions
busters (Standard Chartered), I thought I would compare their grotesque
salaries with those of certain groups of
workers who do contribute to the needs of this country.

Hospital medical and
surgical consultants earn between £70,000 to £95,000 on NHS pay scales. It is
true that some, not all, of them can earn more money privately, but the NHS
commands their primary time and indeed, a vast number of them are committed to
an NHS ethic which demands a great deal of their commitment.

Senior House Officers, the
workhorses of the hospital medical fraternity earn between £26,000 and £36,000 a year. The starting
salary for a qualified state registered nurse is just over £21,000 a year.

Teachers, the people who
are hopefully going to ensure that future generations can enter the workplace
with the skills needed to maintain this country's future as a functioning democracy
earn, in London, £27,000 when they start, although that figure is significantly
reduced outside London. After 6 years in London they will be earning £36,000.
This is not enough money to be able to buy even a small flat at today's
inflated property prices.

Police constables starting on the beat, and the only
people who will provide the line of resistance to the urban rioters who are
building up their numbers and stoking up their anger for a series of targeted
riots and public disorder situations in the near future, are going to have their salaries reduced,
under new Tory plans. Mrs May, the Home Secretary, said the starting salary for
police constables in England and Wales will be cut by £4,000 to around £19,000
in the first major overhaul of police pay and conditions for more than 30
years.

She told MPs she was accepting the recommendations of the
police arbitration tribunal which would help “modernise police pay and
conditions so that they are fair to both officers and the taxpayer”.

Quite how reducing pay for the men and women who do this
increasingly dangerous job is making it fair for them is beyond my
understanding, but we should watch the way in which the politicians will demand
the police manage the civil unrest which will soon become a leitmotif of public
dissatisfaction with Tory policies.

Even Chief Constables in the major urban areas, Greater
Manchester and West Midlands earn only £175,000 a year, while the Commissioner
for the Met earns £240,000. These sound like good salaries, but compared to the
earnings of some cocaine-stoked Short-Sterling Options trader, they are chump
change!

The Fire Service earn on average between £18,000 to
£35,000 for active ranks, and the inner cities will be looking to them to do
their bit when the warehouses and the shops selling training shoes are in
flames, and the mob is gathering to indulge in a bit of free shopping!.

The purpose of providing these comparisons is to
demonstrate the ludicrous disparity in salaries between just a few of those men
and women who really do provide society with essential services, and without
whom ordinary daily life in this country would not function, and the salaries
of those bloated, criminogenic banksters whose actions have done so much to
damage this country and which savage the reputation it once had, for integrity
and honest dealing, but no longer.

As a remarkable example we can review the case of Lloyds
Banking Group, whose latest news on pay is a case study in greed.

A recent report in the Daily Telegraph reports the following.

"...The
loss-making Lloyds Banking Group is poised to reignite rows over executive
excess and rewards for failure by giving a £1.4m bonus, on top of £1m basic
salary, to its chief executive, António Horta-Osório.

The
remuneration committee of the bank, which was bailed out with £21bn from the
taxpayer in 2008, meets next week to recommend the payout despite Lloyds being
expected to report a loss for 2012 of more than £500m..."

So,
that's a good start. They are facing a huge loss but still they want to pay
bonuses. What is wrong with these people, what parallel universe do they
inhabit. By what standard of fairness or reasonableness does Horta-Osório. deserve
another penny on top of his already grossly over-inflated salary?

"...Lloyds
bank, which remains 40% state-owned, would not comment publicly and insisted
privately that no decision had yet been made about the chief executive's
payout, but sources confirmed that a figure of around £1.4m was under
consideration, to be paid in shares and deferred until the taxpayer broke even
on its stake..." Without tax-payer's money, the employees of this bank
would be out of work, in a sense, they are public sector workers too!

Lloyds
is understood to have taken soundings from the government on the payout to
ensure it will not face immediate opposition from ministers.

However,
other critics pointed out that the UK's financial regulator has just fined
Lloyds £4.3m for delays in compensating customers for mis-sold PPI policies
while they also complain the executive bonus and wider remuneration structure
is too opaque.

The
bank has been shamed for defrauding its customers through its dodgy PPI policy
cheating, but they have failed to pay the compensation they owe their clients,
so they have been fined again, and yet they want bonuses for bankers. There is
no other business sector in the world that could demand this kind of special
treatment for repeated failure and expect to get it! It claims to be working
hard on business lending, but, as Lord Oakeshott has said; "Lloyds are
making the right noises on net business lending but there is no evidence of it
yet in the official funding for lending figures. It's a taxpayer controlled
bank so Mr Horta-Osório's contract should be totally transparent with any bonus
deferred until Lloyds has delivered for British business,".

Most
analysts are expecting the bank to announce pre-tax losses of £544m for 2012
after having set aside £2bn in the year to compensate customers mis-sold PPI
policies. The equivalent statutory loss for the previous year was £3.5bn.

Only
in the corpulent world of City banking would bonuses be paid for failing to
make profits, and for hanging on to criminal proceeds and not recompensing
victims, but like their counterparts in the mafia crime families, the banking
godfathers still expect to keep on receiving their due, it's a matter of
respect!

The
LSE Report 'Bankers and their bonuses' makes some unpalatable conclusions. It
states;

"...The
Occupy movement brought a new saliency to the issue of income inequality. Their
key slogan – “we are the 99%” – dramatically highlighted the sense that a small
elite have been the main winners in the decades leading up to the crisis. Top
percentile workers have substantially increased their share of the income pie -
in the 1970s they took around 6% of total UK income but by the end of the
2000s, this had risen to 15%.

On
this measure, we have returned to levels of inequality not seen since the
Inter-war years. But one key difference is that the high-income group used to
be the rentier-class enjoying returns on their fixed capital. Now, the
high-income group are primarily high-wage workers enjoying returns on human
capital.

Among these
high-wage workers in the UK, bankers feature heavily. In 2008, 28 percent of
all top percentile earners in the UK were London bankers. But this dramatically
understates their importance in the rise in overall wage inequality during the
last decade.

We estimate
that somewhere between two-thirds and three-quarters of the overall increase in
the share of wages taken by those in the top percentile have accrued to
bankers. More remarkably, the financial crisis seems to have been so far little
more than a blip for the pay of bankers.

If we focus on
all those workers in the top percentile, their average wage rose from £277,800
in 2008 to £284,100 in 2011, a rise of 2.3% and their share of the overall wage
bill fell, as the mean wage for all workers rose by 3.7%. In contrast, the
bankers in the top percentile saw their average wage rise from £325,100
to £353,100, a gain of 8.6%.

From
an equity perspective, the remarkable gains to those at the top of the income
distribution over the last few decades, may call for higher marginal income
taxes. The appropriate level at which to set such tax rates remains a matter of
intense political and economic debate.

Salary
and wage inequality leads directly to social inequality. These pay figures have
a direct knock-on effect on house prices, community values, and rents, and
inflate the costs of housing and everyday living for the hundreds of thousands
of other people who don't receive anything like these sums. These pay scales
fuel inflation because goods and services in these communities are priced to
reflect the kind of returns the wealthy will be prepared to pay, but which
squeeze the marginalised lower paid immeasurably.

Such
conditions stimulate further criminal activities like fraudulent food
mis-labelling as manufacturers struggle to keep processed food prices in line
with social expectations, and therefore use cheaper or socially unacceptable
forms of food to fill their products. The fraudulent labelling of processed meats in
prepared foods containing horse meat but described as beef, is an example of
the direct outcomes of wage inequality. Poorer people struggle to pay the costs
of premium products sold in high-end outlets with elevated social class
aspirations, and resort instead to cheaper products sold in down-market
retailers, who, in turn have to source their products from increasingly dubious
suppliers. This phenomenon provides yet another turn in the inflationary spiral.

Young
people who have trained to work as teachers, nurses or police officers find
themselves priced out of whole sectors of otherwise normal social housing areas
because of the prices demanded to meet the deep pockets of socially worthless
bankers, thus creating a series of sterile yuppie ghettoes, impacting the
levels and value demands on local education and associated local community
services, and attracting an increase in outlets which sell greater volumes of
expensive clothing, designer accessories, bespoke kitchen fittings, and a host
of other elitist products, but which create, in turn, a disincentive to social
inclusion and community sustainablity.

Grotesque
wealth, and particularly such wealth which shares nothing of value in its
creation, breeds social inequality which fuels envy and jealousy. The have-nots
will be increasingly forced to observe the possessions and life-styles of those
who have, and we will reap the whirlwind of social disaffection and class
warfare.

The
fire next time (with apologies to James Baldwin), will not be easily
extinguished, but we shall know who to blame!

About Me

Having spent my career dealing with financial crime, both as a Met detective and as a legal consultant, I now spend my time working with financial institutions advising them on the best way to provide compliance with the plethora of conflicting regulations and laws designed to prevent and forestall money laundering - whatever that might be! This blog aims to provide a venue for discussion on these and aligned issues, because most of these subjects are so surrounded by disinformation and downright intellectual dishonesty, an alternative mouthpiece is predicated. Please share your views with what is published here from time to time!